1984 (8) TMI 102 - AT - Income Tax

Summary

Issues:
1. Interpretation of rule 115 of the Income-tax Rules, 1962 for conversion of foreign income into Indian currency.
2. Determination of whether rule 115 is procedural or substantive in nature.
3. Application of rule 115 as per the Income-tax (Eighth Amendment) Rules, 1977.

Detailed Analysis:
1. The appeal involved the interpretation of rule 115 of the Income-tax Rules, 1962 for converting foreign income into Indian currency for the assessment year 1977-78. The Commissioner, under section 263 of the Income-tax Act, directed the conversion at a rate different from what was applied by the IAC. The main contention was whether the conversion should be done at the rate of pound 1 equal to Rs. 18 or Rs. 15.13.

2. The key issue was whether rule 115 was procedural or substantive. The assessee argued that the amendment to rule 115 by the Income-tax (Eighth Amendment) Rules, 1977, effective from 1-11-1977, was procedural and should apply to assessments made after that date. On the other hand, the departmental representative contended that rule 115 was substantive and could not have retrospective effect.

3. The Tribunal analyzed the power of the Board to make rules under section 295 of the Income-tax Act. It concluded that rule 115, enacted by the Board, was procedural in nature as it provided for the manner in which income shall be determined for persons residing outside India. The Tribunal held that the amendment to rule 115, effective from 1-11-1977, was meant to apply to all assessments made after that date. It cited a previous Special Bench decision to support this interpretation and ruled in favor of the assessee, canceling the Commissioner's order under section 263.

In conclusion, the Tribunal allowed the appeal filed by the assessee-company, holding that the conversion rate applied by the IAC was correct as per the amended rule 115, and the Commissioner's order was deemed incorrect and canceled.